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Study: Income-Based Repayment Reduced Defaults

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A new study links the drop in home prices during the Great Recession to the increase in student loan defaults over the same period. The study, released by the National Bureau of Economic Research, also finds student loan defaults concentrated among individuals with low-income jobs, which were shed as housing prices dropped. Significantly for student loan policy, the study finds that the income-based repayment program introduced after the recession led to fewer student loan defaults and protected borrowers against adverse income shocks.

Eligible student loan borrowers who did not enroll in income-based repayment, however, continued to have high rates of default after 2009, the authors found.

The study's authors were Holger Mueller and Constantine Yannelis, both of New York University's Stern School of Business.